Finally, page-2

She's lookin pretty!

Bell's recent research report:

Good 4QFY14 cash flow
PS&C released its 4QFY14 cash flow and it was a good quarter for cash generation.
The key highlights were:

 Net operating cash flow in 4QFY14 of $2.6m (which included working capital
investment of $2.2m and taxes paid of $1.3m);
 No payments for PPE (i.e. no capex) in 4QFY14 (consistent with 3QFY14);
 Net change in cash for the quarter of +$0.9m; and
 Cash at bank at end of 4QFY14 and FY14 of $5.6m.

We do not forecast cash flow quarterly but, suffice to say, the 4QFY14 operating cash flow was stronger than is implied in our FY14 operating cash flow forecast and similarly the 4QFY14 capex of zero was lower than is implied in our FY14 capex forecast. The proof of this is that we were forecasting year end cash at bank of $3.5m and the actual figure is $5.6m (i.e. c.$2m better than we were forecasting).

Now for the earnings result
The strong 4QFY14 cash flow result bodes well for the FY14 earnings result which is scheduled to be released on Tuesday, 26th August. We are, of course, unable to determine the earnings result from the 3Q/4QFY14 cash flows but the strong 4QFY14 cash flow, in particular, provides support for our FY14 earnings forecasts as well as the lack of any further update from the company on profit guidance for the year.
Note our pro forma FY14 EBIT forecast of $6.7m is at the lower end of the company’s guidance range (provided in early June) of $6.65m to $7.4m.

Investment view: Retain BUY, PT $1.15
We retain our BUY recommendation and $1.15 price target on PS&C.

Our price targetis generated from a blend of three valuations – PE ratio, EV/EBITDA and DCF – which
we only recently updated and there is no change. At this price target the total expected return (including the dividend yield) is c.51% which supports our BUY rating.